The Secretary of State to the Assistant Vice President, Central Hanover Bank and Trust Company, New York (E. G. Herendeen)

My Dear Mr. Herendeen: Reference is made to your letter of January 17, 1940,98 signed by:

  • Central Hanover Bank and Trust Company
  • The New York Trust Company
  • Guaranty Trust Company of New York
  • Manufacturers Trust Company
  • The First National Bank of Boston
  • Old Colony Trust Company
  • Boston Safe Deposit and Trust Company
  • Safe Deposit and Trust Company
  • St. Louis Union Trust Company
  • Continental National Bank and Trust Company of Chicago

enclosing a schedule of obligations of the National Railways of Mexico on which no interest has been paid for a number of years and requesting the Department to enter into negotiations with the Government of Mexico with the view of bringing about the commencement either of payments of the amounts due or of the payment of adequate compensation for the expropriated properties of the railways in question. The statement made in the communication under reference that a large part of these obligations are distributed among investors throughout the United States has been noted.

The Department’s information indicates that under the terms of a Mexican decree promulgated April 30, 1938, there was created the National Labor Administration of the National Railways of Mexico. Article 12 of the decree reads in translation as follows:

“The Labor Administration shall be obliged to:

  • “a).—Invest at least 5.36% of the gross revenue in additions and improvements;
  • “b).—Pay the Federal Government a participation, the amount of which shall be calculated, taking as a base a percentage of the gross revenue and adding a percentage of the remainder in the manner established in the following article. The base percentage shall be 5.64 when the annual gross revenue is 125 million pesos or over, and 3.64 when the gross revenue is less than 125 million pesos.”

In an interview had on June 20, 1938 with the Mexican Minister of Finance, a representative of the American Embassy at Mexico City was informed that the contribution of 5.64 percent of gross income would be held by the Government for the payment of the National Railways’ obligations, presumably for the account of bondholders.

The Department understands that a tentative agreement was reached in 1938 between the International Committee of Bankers on Mexico and the Mexican Government concerning the bonds of the National Railways. It is further understood that this agreement provided for the conversion of the railway dollar debt into $240,000,000 Mexican pesos. However, the Department’s information does not indicate that the agreement was ever ratified by the interested parties.

As the Department has recently informed you, this Government considers difficulties or controversies arising between American holders of foreign bonds and foreign governments to be primarily matters for negotiation and settlement between the foreign debtors and the American bondholders or their representatives. The Department does on occasion use its good offices when it appropriately can to facilitate negotiations between defaulting foreign governments and the American interests directly affected or their representatives. [Page 1065]However, the Department does not contemplate entering into any discussion at this time with the Government of Mexico regarding the railway bonds under consideration.

The Department is communicating with the American Embassy at Mexico City with the view of determining the amount which has thus far been contributed to the Mexican Government in accordance with Article 12 of the decree of April 30, 1938. As soon as a reply is received from the Embassy I shall be glad to advise you of its purport.

Sincerely yours,

For the Secretary of State:
Sumner Welles
  1. Not printed.